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Investment banking - Essay Example

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The first key driver is purchase price; this is the total amount that an acquirer pays for the acquisition of the target. Secondly, there is an acquirer. This is the company or organization that acquires the target. Acquirers…
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Download file to see previous pages They reflect the earnings that the target will generate in future (Rosenbaum & Pearl, 2013: 389). 
Fourthly, there are synergies. These are the resulting combined effect which is often greater than the sum of the organization’s individual effects. It is the increased effectiveness resulting when the two organization work together. Sizeable synergies usually help in offsetting the financial convention thereby resulting in accretive acquisitions. The fifth key driver is form of financing that is adopted and most notably, it entails the debt and equity mix (Rosenbaum & Pearl, 2013: 389). It represents the proportion of debt and equity. And finally, there is cost of debt which is normally the cost of borrowing funds by the organization.
The LBO analysis often has a number of primary functions. First it for the most part gives a floor or benchmark valuation for the organization, and is helpful in figuring out what a financial sponsor is able to afford to pay for the target and still stand a chance of realizing a satisfactory or adequate profit for its venture or investment. The second primary function of LBO (leveraged buyouts) analysis is to give companies an opportunity of making large acquisition of other ventures without necessarily having to commit a substantial amount of capital. This helps companies to easily acquire the target (Rosenbaum & Pearl, 2013). 
The other primary function of LBO analysis is the determination of financing structure for the target. LBO analysis help organization is determining the amount of capital, the type of capital as well as the terms of debt or equity for the target. This therefore facilitates the process of acquisition of the target. On the other hand, LBO analysis assists in mergers and acquisition (M&A) advisory. This primary function aids in determining an implied range of valuation for any given target in the acquisition process. The LBO analysis is used to determine valuation with the help of key value drivers ...Download file to see next pagesRead More
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